Navy Procurement of Publication Services for the Revision of Technical Manuals Under Indefinite-Quantity-Type Contracts

Published by the Government Accountability Office on 1971-07-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                       UNITED STATES GENERALACCO
                                WASHINGTON, D.C.

DEFENSE DIVISION                                     1/)     YJ     )

          B-165961                                           Ilj1111111I1ll1111111111
          Dear Mr. Secretary:   ยง

               On October 22, 1970, we sent you a draft report for comment,
          which dealt with Navy procurement of publication services for the
          revision of technical manuals under indefinite-quantity-type con-
          tractsJ(OSD case No. 3196). This report contained the findings
          from our review of five contracts awarded by the Navy and Marine
          Corps for such services as typing, editing, proofreading, writing,
          and illustrating.

              Our findings were that the Navy had followed the practice of
         awarding an indefinite-quantity-type contract to the contractor
         who quoted the lowest hourly rate, and then paying the contractor
         at that rate for the hours billed by the contractor without check-
         ing the records to determine the actual number of hours that had
         been used to complete the work. The Marine Corps had a somewhat
         different system, but the results were about the same. The Marine
         Corps made awards of indefinite-quantity-type contracts to several
         of the most technically qualified contractors who bid the lowest
         hourly rates. The 1Marine Corps, however, did not follow its
         policy of having the several contractors compete for each order.
         Instead, it negotiated fixed-price orders almost exclusively with
         one contractor using, as the basis for the price, the hourly rates
         bid by the contractor and contractor estimates of the hours that
         would be needed to perform the work. Therefore, the Marine Corps
         was not getting competitive prices. Further, because it did not
         obtain information as to the hours actually expended doing the
         work, it did not know how the contractor's estimates and actual
         hours compared.

              The Navy and Marine Corps' methods of handling these pur-
         chases made it possible for contractors to charge for a substan-
         tially larger number of hours than actually had been required to
         perform the work. In this respect our review of $100,000 worth
         of orders, selected from the $2.1 million worth then placed under
         the five contracts, showed that the contractors had received

                            50TH ANNIVERSARY 1921-1971
 payments for 22,000 hours, although only 12,000 hours had been used
 in performing the work. During discussions held with Navy and
 Marine Corps officials, we were advised that, where appropriate,
 recovery action would be taken against the contractors for over-
 payments made under the contracts.

      In view of the substantial overcharges resulting from this method
 of contracting, we recommended that the Navy issue instructions gov-
 erning the use of indefinite-quantity-type contracts to provide the
 safeguards needed to secure reasonable prices for the Government and
 that the Armed Services Procurement Regulation (ASPR) Committee con-
 sider revising ASPR, to require improved control over the use of
 indefinite-quantity-type contracts.

     We have received two replies to our report from the Deputy Assis-
tant Secretary of Defense (Installations and Logistics), one dated
December 16, 1970, and the other dated April 5, 1971. In these replies
we were advised that, with regard to our first recommendation, the
Navy had modified ongoing contracts, to establish a ceiling price for
each order placed against these contracts and to limit the contractor's
compensation. to the actual hours expended, not to exceed the ceiling.
Also the contractors will maintain specific and detailed records of
the costs incurred, and the Government will have the right to audit
the contractors' records. In addition, the Navy has issued specific
and detailed instructions regarding the placing of orders under
indefinite-quantity-type contracts where the price is established
on the basis of estimated time. The Navy has issued also an appro-
priate warning to all contracting officers regarding the use of
indefinite-quantity-type contracts for the procurement of services.,

     With regard to our sccnd recommendation that ASPR be revised
to require improved control over the use of indefinite-quantity-type
contracts, we were advised that the current guidance in ASPR was
considered adequate. We were advised also that it was the opinion
of the Deputy Assistant Secretary that the problem identified was
mainly one of ensuring the application of current guidance in the
regulations governing the administration and payment of contracts.
The Deputy Assistant Secretary also stated that a similar situation
probably did not exist in the other services. The Air Force indi-
cated that its requirements for such services usually were obtained
by competition on a fixed-price-per-page basis. The Army indicated
that it buys these services under time-and-material-type contracts
and that, on such contracts, an auditsis requested from the Defense
Contract Audit Agency prior to final jayment.

     We believe that the vigorous action taken by the Navy in
response to our report is commendable. In view of this action,
and the indications that the Army and Air Force use other pro-
curement methods to obtain these types of publication services,

we do not plan to pursue this matter further at this time. We plan,
however, to review the results of the Navy's corrective action at an
appropriate time to determine if the action has been effective.
After we have reviewed the results of the Navy's action, we will
give further consideration to the need for providing more specific
guidance in ASPR.

     We appreciate the cooperation extend to members of our staff
by Navy and Marine Corps personnel during our review. Copies of
this letter are being sent to the Secretary of the Navy and the
Office of Management and Budget.

                                        Sincerely yours,

                                 /c    DirectorDefensei

The Honorable
The Secretary of Defense